Tag Archives: home loan

Why should you get loan pre-approval?

get-your-home-loan-pre-approved (1)When you set out as a first home buyer, there are many steps along the way to getting on the all-important bottom rung of the property ladder. One such step is pre-approval for a loan, which can be vital depending on how you are buying a property. Here are some of the benefits of getting a loan pre-approved.

It saves you time

When you obtain pre-approval, you are not just getting a tick of approval from your chosen lender – you are getting an outline of how much you can spend. Once you work out the ballpark amount of what you can borrow, you gain a much clearer idea of what kind of property you can and cannot purchase.

This is much better than wasting time negotiating on a property you really want, only to discover that you are unable to secure lending to pay for it – find out in advance!

It helps your negotiations

Having a loan pre-approved shows a vendor that you mean business. You know how much you can spend, and the bank is willing to back you up, so home sellers may be more likely to engage with you at the negotiating table.

Knowing your lending limit can come in handy if you negotiate on your own, as it could stop you from getting carried away and committing to spending more than you can afford.

It lets you go to auction with confidence

Most auctions will require you to have pre-approval on a mortgage. This is because once the reserve is passed, bids will be binding – you do not want to find yourself unable to back up your auction actions when the hammer falls!

By going to your chosen lender and obtaining this important approval, you can swiftly and confidently get cracking on the real estate purchase of your dreams.

Plan Ahead for Interest Rate Rises

Interest rates will inevitably rise again and it is best to plan ahead so you are in a better financial position when they do and can lessen any negative impacts.

Rate increases will obviously impact on households, especially in areas where mortgage stress is already being experienced.  Add to this spiraling living costs and affordability may once again become an issue for the property market

Draw up a detailed budget, factoring in rates at two per cent higher than current levels, and then adjust your spending, setting aside any savings generated for a rainy day.

It would also be wise to seek the assistance and advice of a financial planner for this exercise.  First National has access to a range of suitably qualified and experienced professionals for just this purpose.

Another suggestion to consider is consolidating debt under the one umbrella, where interest fees are often considerably less.

A home loan health check could also prove fruitful, especially where mortgages are five years or older and given the wealth of new products in the mortgage market, where the recent ban on exit fees could produce savings of thousands of dollars.

Alternatively, some financial advisors recommend their clients consider splitting the home loan so that half is on fixed rate and the other half is on a variable rate.

One of the easiest steps for mortgage holders to take is to make fortnightly repayments instead of monthly or bi-monthly.

This means the mortgage holder is making 26 payments per year, instead of only 12 or 24, which can make a lot of difference over the life of the loan, producing savings on interest costs and reducing the term of the loan.

Seven Habits of Highly Effective Home Buyers

If you find the prospect of buying your first property a little intimidating, don’t worry. Doing some basic research is easier than most people think. It increases your confidence and reduces the chance of making a mistake.

Buying a home is about the biggest financial commitment you’ll ever have to make. However, it’s also going to be an exciting turning point – one that will almost certainly make the most impact on your lifestyle. For many it will be something never done before. Selecting the right home in the right area, organising finance and negotiating the sale – it all sounds a little daunting. Yet it isn’t as complicated as you may think! Turning the home of your dreams into a reality is easier if you’re prepared.

Why seven habits of effective home buyers? Because over the years we’ve seen some traits (habits) the our successful buyers share. What is a “successful buyer”? Let’s just define it as someone who finds the home they want, and gets through the often home buying process without killing themselves, a loved one, the seller, or their real estate agent.

Effective Habit #1: Get pre-approved for a loan

Don’t miss out on a ‘hot’ property, do everything you can to be able to push the ‘GO’ button. It is wise to seek “approval in principle” from your Lender, meaning the Lender has given you approval to borrow up to a certain figure.  This step will save you the grief of looking at homes you can’t afford and put you in a better position to make a serious offer when you do find the right one.

Buying a home is not a task undertaken everyday. It’s important to understand the process of real estate, what you can comfortably afford and the type of loan product best suited to

Choosing the right home loan from the many products available can be daunting. It’s important to understand all the alternatives before making your choice.

It is crucial to work with a good lender throughout the home buying process. Talking to several brokers as well as a finance adviser will definitely help you sort the wheat from the chaff. There are two options available to you when organising finance. You can apply directly to a finance institution or you can use a mortgage broker to help you through the process.

A lending institution will apply a “Qualifying Ratio” which is the percentage of a home buyer’s gross income that can be prudently allocated for debt, based on personal income.

As a general guide, lenders limit the total sum of monthly mortgage principal, interest, tax and insurance payments to 28 per cent of the borrower’s gross monthly income. Furthermore, they may limit the total of all long-term debt payments to 36 per cent of the borrower’s gross monthly income.

Effective Habit #2: Define your must haves, like to haves, and cannot haves

Shopping for a property should be an exciting adventure. If you have a clear picture of what you want and how much you can afford, it can be a fun and rewarding experience.

Face it — when working within a budget, sometimes you have to make some compromises. Knowing what you really need can help narrow your home options and also make decisions easier when it comes to making an offer.

The first step is to decide what kind of home will suit your tastes, your lifestyle and your budget. Start an all-family member housing priority discussion before beginning to look at your options. Determine what you MUST have in a home. Then determine what you would LIKE to have in a home. Talk to your agent about these things. Don’t forget to include what you CAN’T have in a home — that will often be more important than anything else.

Aside from basics such as the suburb, number of bedrooms and price range, there are other important things to consider, depending on your circumstances. Take your time and consider things like proximity to schools, transport and amenities, and the condition of the property. Does it need major repairs?

Don’t know exactly what you must/like/can’t have in a home? That’s OK, it happens ALL the time. Your agent can help you by showing you different homes in your price range with different features to help you get a better understanding of what you’d like in a home.

But at some point you are going to have to make decisions and not wander aimlessly through every home that may possibly fit some undefined set of criteria. That would be a waste of your time, the time of your agent, the home sellers, and everyone else that is involved in a real estate transaction.

Effective Habit #3: Be realistic

Naturally everyone wants to get the most home they can for the least amount of money. Which is, of course, in opposition to the home seller, who wants the most money for their home.

Think about what your expectations are, and work with your agent to see if they are realistic. There’s no point looking for a mansion if you can only afford a cottage. You’re not going to get everything a $300K+ home has to offer for say $160K – it just doesn’t work that way. Once you’ve set your price range, identify the suburbs that have properties in that range – it will save you a lot of legwork. Work closely with your agent, ask them for recent sale prices of similar properties in the area, build that trust and get out there and find that perfect home!

Being realistic also applies to things besides the home itself. Buying a home in a low price bracket and expecting no repairs or maintenance? Good luck with that. Buying a home and thinking if the building inspector finds anything wrong with it (other than major structural problems), I’m not buying the house? Well you might as well stop right now because I can assure your there aren’t any homes where the building inspector finds nothing to report.

Don’t wait for the perfect market conditions – they will never appear and you’ll miss out on significant capital growth. Just be realistic. It will greatly reduce your stress levels.

Effective Habit #4: Be flexible

As a home buyer, it is important to be flexible. Unless you are having a home built to your exact specifications, it’s very unlikely that you will find the absolutely perfect home for you. Maybe you find a home that has everything except the perfect kind of flooring, colours, kitchen, whatever. If you have some flexibility built into your must haves and likes, you will find the entire process much less painful.

Don’t be tempted to make a very low offer in an attempt to grab a bargain as others may also be making offers and you could miss out. If you really want the property make sure your offer is realistic. The more attractive you can make your offer in terms of price and conditions, the more likely your offer will be accepted.

Effective Habit #5: Understand the home buying process

You don’t need to understand every step of the home buying process — that is your agent’s job. But the more you do understand, the less stressful and mystifying the process will be. Buying a home is a stressful event. Anything you can do to reduce that stress will go a long way not just toward saving your sanity but in helping ensure the transaction moves to settlement.

So, you have found a place you’d love to call home? Once you’ve considered other comparable nearby properties, take a deep breath and make an offer – IN WRITING!

There are two ways to do this:

Unconditional offer:

An unconditional offer is when you offer an amount to buy the house as listed (with or without drapes, fixtures, etc.) without adding or negotiating any other conditions.

Conditional offer:

A conditional offer is when you offer to buy the property only if certain conditions are accepted by the vendor. These must be listed on the Contract of Sale. For example, your offer may be conditional on arranging finance. If finance cannot be arranged within a certain period of time, the offer becomes void. For your own protection, you should nominate a specific lender as your source of finance. Leaving out a nominated lender or having open-ended finance conditions on your Contract of Sale may force you to take up finance at substantially higher rates, perhaps shorter terms, and from a lender you would not prefer to deal with. Another condition might be an extension of the settlement period. If the seller does not accept the conditions, further negotiation may take place or the offer may simply be declined.

Also be aware that if making an offer, never assume that your agent or the property owner will come back and forth to you – and you should take the approach that your first offer may be the only opportunity you get to obtain the property. A willing seller may not wish to wait around and may accept a reasonable offer from another buyer.

Do not be afraid to ask your agent questions. Lots of questions. Be advised that everyone in the process tends to toss about terms and jargon that only those dealing with real estate on a daily basis understand. Sometimes we forget we’re speaking in a different language. Don’t be shy. If there’s a term you don’t understand, ask.

Effective Habit #6: Be responsible

When you are looking at potential homes, be responsible and respectful that you are in someone else’s home. It’s OK to look in their cupboards, to flick light switches, to turn on the stove. But be responsible and leave the home in exactly the same condition you found it in.

Much of this habit really boils down to two things: 1) use common sense; and 2) treat others how you expect to be treated.

As a home buyer, you are going to have to work with a lot of different people in order to make sure your transaction progresses and ultimately settle.  Once an offer has been negotiated you’ll pay the deposit to the real estate agent who places it in a trust account. This is also the time when you should

  • Organise your solicitor/conveyancer
  • Arrange the balance of the purchase price—that is finalise the finance and sign the mortgage documents.
  • Organise any inspections
  • Insure the property

Effective Habit #7: Have fun!

We already mentioned that buying a home is a big step – both financially and emotionally. Take a look around at lists of “life’s most stressful events” and you’ll see things like taking on new debt, financial change, moving — that’s buying a house. You are about to enter into one of the single largest financial transactions of your life. Stress is a given.

But buying a home is also an exciting time! There isn’t a law that requires you to mope around, dreading every moment. There’s nothing wrong with having fun during the process. Hopefully you are working with an agent that you enjoy working with. That doesn’t mean you all need to participate in group hugs or go camping together. But it’s OK to laugh, to enjoy yourself, to have a little fun in the process.

The Bottom Line

Buying a home doesn’t have to be torture. If you understand the process, work with the right people and try to have a little fun along the way there is no question that you can find a great home and get to move into your new home. Think about the habits shown here, do a little online research, have open dialogs with your agent and lender and you too can make it through a home purchase.

Preparation is the key. Understand your rights and have everything in place. And no, applying seven habits, or even one hundred habits is going to ensure you have a successful home buying experience. Nothing can guarantee that. But you can certainly increase the likelihood of a less stressful and successful transaction by applying some of the habits listed here along with advice from your solicitor/conveyance and your agent.

Home Ownership Still Within Grasp

Home owners and buyers are once again feeling the pinch to keep their dreams of home ownership alive as housing affordability returns to the property market agenda.  But, it’s a matter of rethinking options and developing creative strategies. 

Impending future rate rises, along with tightening lending conditions and increasing mortgage stress concerns have started to take their toll on home buyers’ ability to own their own home.  Home buyers need to take action on an individual level to tear down the wall of housing affordability in any way they can.

Recent research has found a decline in the number of home loans with a high loan-to-value ratio (LVR) of 95 per cent or above.  LVR refers to the amount of money borrowed for a property, compared to what the property is worth. 

While lending criteria has toughened in recent months, there are still lenders willing to negotiate a better deal around a number of factors such as fees or rates or the actual LVR itself. 

Lending institutions need to be willing to negotiate and be a little more flexible.  There are plenty of lenders out there who are willing to do just that, if home buyers are willing to shop around a little and do a bit of homework themselves.  It’s up to the individual to take matters into their own hands and ask.

But they need to have the facts that support their case as well.

Some key tips for overcoming housing affordability concerns include:

  • Time your purchase for when there is a lull in the market, such as winter, when the market generally slows and lower demand can potentially tip the balance in favour of buyers.
  • Calculate what you can afford to spend, factoring in any interest rate increases, probably 2 per cent higher than current levels.  Match this to your list of preferred suburbs and concentrate on properties that are genuinely within your range. 
  • Be flexible and adjust expectations as required.  You may dream of buying a home in a particular area, but consider a smaller home, or even a unit or apartment, with a view to upgrading later.  Alternatively, consider an area a suburb or two removed from your where you would like to live. 
  • Start a disciplined saving strategy immediately.  Set realistic savings goals and set up an achievable budget for household expenditure. 

First National Burnie has some sage advice for home owners currently experiencing mortgage stress. 

Home owners can consider extending the life of the mortgage. 

In recent years, all the focus has been on how quickly a family can pay back the mortgage and then move another rung up the ladder. 

Obviously, that is the most desirable situation, but times are changing and it may be more useful to focus instead on how to get into the market in a way that is financially manageable. 

But whatever you do, you should seek the services of a qualified, reputable and trustworthy financial advisor.

First Home Buyer Numbers Arrested

The number of first home buyers in the marketplace has dropped significantly, but according to Deanne Lamprey from First National Real Estate Burnie, there is still plenty of opportunity for first home buyers to realise their dreams of home ownership.

“Since October last year, market share for first home buyers has decreased from 26 per cent to 22.1 per cent currently,” Deanne Lamprey said.

“And the potential for escalating interest rates, which have now been on hold for three consecutive months, along with government taxes and high up-front costs may make things even harder for first time buyers to save for that ever-important, yet growing in size, deposit.”

Deanne Lamprey does have some advice to offer first home buyers, whose confidence is waning as house prices are set to continue soaring growth throughout 2010.

“First home buyers need to be more financially savvy if they are going to get into the housing market in the coming twelve months,” Deanne Lamprey said.

“They need to be able to make sound financial decisions, based on a level of certainty around interest rates.

“This is why we recommend they seek the services of a financial advisor who can assist them to establish a savings plan and budget to track their expenses and identify areas where they can cut back on their expenditure.”

Establishing a budget is about setting realistic timeframes, estimating income and expenses accurately and then tracking and monitoring spending to identify areas where belts can be tightened.

“There are also still in place a number of government assistance schemes, such as the First Home Saver Accounts and First Home Owners Grant which can also assist greatly,” Deanne Lamprey said.

Other hints for first home buyers include keeping an eye on the market at all times, talking to good agents about where the bargains lay in a suburb, and shopping around for good mortgage deals.

“Look for mortgage deals where you are able to pay back more than the monthly repayments, which can often reduce the term or interest payable on the mortgage significantly,” Deanne Lamprey said.

“Or, consider switching from a standard to a basic, or no frills, home loan which can potentially cut interest rates by around 0.4 per cent, but potentially may take away the flexibility to achieve other savings such as extra repayments.”

First home buyers need to reclaim their share of the property market and take advantage of the services and incentives currently on offer.